Two Country ETFs Rising From The Ashes (GREK, EGPT, CCH)
Over the last few years there has been geopolitical turmoil around the globe that has hit certain countries worse than others.
Two of the hardest hit, for very different reasons, were Greece and Egypt. Greece was the epicenter of the European financial crisis and Egypt was the poster child for the Arab Spring.
While both countries saw the value of the stock markets fall dramatically as the crisis were taking place. Both are now experiencing two of the best rallies of any country in the world as investors find their way back into the markets.
The Global X FTSE Greece 20 ETF (NYSE: GREK) is up 28 percent in the last 12 months and trading at the best level since its inception in late 2011. The Athens Stock Exchange General Index, which tracks the countries overall stock market, is up 170 percent from the low set in May 2012.
Even though the numbers sound great over the last couple of years, the index would have to more than double just to get back to the high it set in October 2009. This allows more running room for GREK to the upside even it is up 160 percent from its low in 2012.
The ETF is designed to track the performance of the 20 largest stocks listed on the Athens Stock Exchange. The consumer discretionary and financials make up over half of the portfolio. The largest holding is Coca-Cola Hellenic Bottling (NYSE: CCH) at 14 percent, followed by Hellenic Telecom (OTC: HLTOY) at 12.6 percent.
The P/E ratio for the Greek stock market remains in the single-digits after the big rally as investors continue to be weary of the debt-ridden country. Greece is not out of the woods, but it should be apparent the country is in a far better place than it was two years ago and the trend is improving.
In the last 12 months the Market Vectors Egypt Index ETF (NYSE: EGPT) is only up 11 percent, but since a low in June 2013 the ETF has gained 60 percent. The ETF remain 32 percent lower than its high set in April 2010. The political situation in Egypt remains a tinderbox ready to light up, however the economy is slowly improving as stability has started to come back to the country.
The ETF is a basket of 27 stocks that are either based in Egypt or derive the majority of their revenue in the continents third largest economy. The financials make up 42 percent of the portfolio, with another 30 percent in telecom services and materials. None of the top ten holdings are traded on major stock exchanges in the U.S.
While Greece still has its issues, the economic problems are easier to track and keep tabs on. In Egypt the situation is fluid and it is more difficult to determine if another uprising will occur that could wreak havoc on the country’s economy and stock market. Both countries carry high risk, however at the same time the reward potential is above average. Investors must be comfortable with high volatility and the risk of a sudden sell-off.
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